20 October 2008 16:43 [Source: ICIS news]
LONDON (ICIS news)--European contract cracker margins have reached a new high for the decade, rising 21% to breach €1,000/tonne ($1,333/tonne), as naphtha feedstock prices continue to weaken, ICIS margin analysis showed on Monday.
Contract cracker margins have been steadily improving since their nadir in June when crude and naphtha prices peaked at $147/bbl and $1,150/tonne and contract margins went negative for the first time since September 2005.
However, naphtha prices had dropped especially rapidly over the past two weeks on the back of weaker crude amid global recessionary fears, with prices pegged below $500/tonne CIF (cost insurance and freight) NWE (northwest Europe) in the week ending 17 October.
Fourth-quarter ethylene (C2) and propylene (C3) contracts settled down in recognition of weaker feedstock, but the healthy cracker margins had led some market sources to call for these contracts to be renegotiated given the “unprecedented” low demand situation.
While the majority of industry observers thought that a renegotiation of benchmark contract prices was highly unlikely, there were signs that certain sellers were showing buyers flexibility and giving them some leeway with regards to discounts.
Spot naphtha margins were comparatively flat as spot product prices fell as fast as feedstock costs. Spot ethylene and propylene prices were pegged in the high €600s/tonne FD (free delivered) NWE and mid to high €800s/tonne CIF NWE, respectively.
LPG (liquefied petroleum gas) contract margins increased by more than €280/tonne which reflected a drop of more than $165/tonne in the average LPG price.
However, LPG margins still lagged naphtha margins by more than €185/tonne.
($1 = €0.75)
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